A Game in its Own Right

Once a team decides it has to take action on certain players on its roster, what options does it have? How can a team effectively get rid of veterans and their contracts in preparation for a new League Year?

This option is beneficial because it immediately releases a team from any unguaranteed portion of a player’s contract, thereby giving the team that money back in cap space. But releasing a player does not always result in a net gain. For example, assume a team was using the “credit card approach” described last week. If the team decided to cut a player with that type of contract, pro-ration in future years could result in a net loss on the salary cap (not to be confused with the positive credit on cash outlay).

For example, assume Player A signed a four year contract. His salaries are $1 million in year one, $3 million in year two, $5 million in year three, and $8 million in year four. He was given an $8 million signing bonus, which prorates to $2 million counting towards the team’s cap each year of the contract. If the player is no longer wanted after playing through year one of his contract, and the team decides to release (or trade) him, they save the $3 million in salary, but an additional $4 million in pro-ration from years three and four accelerate into year 2! In addition to the $2 million signing bonus pro-ration already counting in year 2, the team has now taken on an additional $1 million net loss on the cap ($3 million – $2 million – $2 million). If released prior to June, this team would have $6 million counting on its’ salary cap for a player not even on the team! In this case, such as the current scenario with Mark Sanchez, releasing the player is not an option.

For example, assume a team has a player scheduled to make $14 million in base salary for the upcoming season, and the player has 3 years left on his contract. If the team reduces his $14 million salary to $2 million, $12 million can then be converted to signing bonus on a “new” 3-year contract. Accordingly, $4 million will now count as proration in each year remaining in the deal. So the player is getting paid the same cumulative total, and the team’s cap charge just went down from $14 million to $6 million ($2 million + $4 million).

Rather easily, the team just created $8 million in cap space! As undeserved as it is, the team executive may even be lauded by the media for working some fantastic ‘cap magic.’ But you now know the difference between genius and forced maneuverings: The more money a team converts to signing bonus, the more pro-ration that is pushed into future year’s salary caps. In this scenario, the team can easily set itself up for future cap problems, so teams should be careful to not convert any more than is necessary.

Time to Extend

Ideally teams like to schedule these renegotiations such that a player is receiving a contract extension while also reducing his current year’s cap charge. While this multi-year extension does help to secure a player in the future and reduce a large cap charge, money initially earmarked for the current League Year is still being pushed into the future. With enough of these deals on a roster, the team will no doubt be paying dearly for prorated money in the future! At any rate, you will see numerous extensions in February with the intent of generating a cap savings (which may or may not be reported). I negotiated many such deals during my time working on the team side.

Option #4

Lastly, a team can look to trade, but the trade can only be officially consummated after the new League Year begins. If a team wants to get rid of a player and the team feels that the player has a high enough value to other teams, it will choose to hold on to a player into the new League Year. If the team is not desperate in February for the immediate cap space gained by outright releasing the player, holding onto the player until late March can be beneficial.

Teams usually begin shopping players quietly at the end of February while at the Scouting Combine. While no deals are official, terms can be agreed to. A team may be putting the player on the trading block because the player will not take a reduced salary and/or the team knows the player is of high value/interest to numerous other teams. Without outright stating it, executives will try to subtly generate rumors about their team wanting to get rid of a player. (When other teams know that the player’s current team is looking to get rid of him, the acquiring teams have the leverage. And with that leverage comes a lowered offering price.) So a team can maintain leverage by floating rumors and gauging the market for a player by the number of inquiries they get in February. If very few calls occur with little to no compensation, it makes sense to simply release the player.

With trading a player, not only would the team gain the cap space, but it would also receive compensation in return. In most of these cases, a team will receive a mid-round draft pick. Interested parties know the team doesn’t plan to hold onto the player, but they also know the team will not be releasing him. The player will likely be traded to the highest bidder. As a result, the decision to hold onto the player into the new League Year reaps the extra reward of a draft pick.

However, if a team holds on to a player and his salary cap charge, especially if the cap space is needed to sign new players, they had better be sure they will get worthwhile compensation in a trade. Otherwise, they kept the player on the roster for no reason and were not able to use the cap space they would have generated by releasing him in February. This approach requires patience.

On rare occasions a team will have a committed suitor in place prior to the trade period opening, but most of the time the team will have to wait for the free agent market to dry up at that position. Once only marginal free agents are left (usually the fourth week of free agency), the player being shopped in a trade will gain value. Think of musical chairs: Assume 5 teams need veteran quarterbacks that have proven their worth as starters. If only 3 such quarterbacks exist in free agency, 2 teams will be left without a chair. Consequently, one or more teams will turn to the team that is shopping a quarterback. So the decision to not release the player in February pays off for the trading team, if the team has enough cap space!

The End of the Beginning

No matter what a team decides to do, the actions teams take in February are done with a purpose. So the next time you hear of a player extension, renegotiation or release in February or early March, you will have the knowledge to diagnose the actual reason for the move.

With the NFL Combine concluding, free agency is the next step. Next Friday I plan to dissect and explain the details involved with that frenzy of action. If you have any feedback, you can contact me directly.

With a career background encompassing the many aspects of the National Football League, Mr. Pirucki offers a wealth of knowledge on the inner workings of a Club Front Office. His expertise in contract negotiation and salary cap management is supplemented with insight on other Club activities, including scouting, personnel decisions, workouts, injuries, cash flow, training camp, etc… His experience includes sports administration roles with the Detroit Lions, NFL League Office, The Detroit Group, Detroit Tigers, Toledo Mud Hens, and Bowling Green State University.